NEWS
MARCH DATA MARKS STRONG GROWTH OF NEW ORDERS IN CONSTRUCTION SECTOR

11 April, 2012

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The strong growth of new orders supporting the rise in construction sector activity could be attributed to the good weather in March, according to a Markit economist.

March data from the Markit/CIPS Construction Purchasing Managers’ Index signalled a marked expansion of UK construction sector output, with the rate of growth accelerating for a second successive survey period.

A rise in new work intakes supported the latest increase in activity, as well as a modest rate of job creation.

Chris Williamson, chief economist at Markit, said: “The good weather appears to have led to a surge in demand for construction projects in March, adding to the recent flow of good news which suggests the economy will have skirted a recession.”

The seasonally-adjusted Markit/CIPS Construction PMI posted 56.7 in March, up from 54.3 in February. The index has now posted above the 50.0 no-change level that separates growth from contraction in every month since January 2011. Moreover, the latest reading pointed to the sharpest expansion of output for 21 months.

Construction companies reported the largest monthly rise in new orders for four-and-a-half years, driving building activity higher at the fastest rate since mid-2010.

Williamson said that, coupled with increasing activity recorded in the first two months of the year, this bodes well for the sector’s contribution to the overall growth of the economy in the first quarter of 2012.

Growth was recorded across all three of the broad construction categories monitored – housing, commercial and civil engineering.

Commercial was again the strongest performing of the sub-sectors, in line with the recent trend. However, the increase in civil engineering activity strengthened and was the fastest since March 2011.

A substantial rise in new business was seen, and growth has now been sustained for six consecutive months, with the latest rise the sharpest since September 2007. Panellists commented that a general improvement in market activity, increased tender opportunities, and long-running negotiations coming to completion, had boosted new work intakes.

“Looking ahead, the lack of big new projects such as Cross rail and the Olympics means expectations about the year ahead continued to run well below the pre-crisis peaks, but business confidence nevertheless reached the highest for nearly two years, driven up by expectations of increases in new order intakes and improving client optimism,” added Williamson.

“The particularly encouraging news is that the improvement in confidence is generating more jobs, with employment rising modestly.”

Purchasing activity rose at the fastest pace for over four years in March, in line with a faster expansion of output requirements. Subsequently, suppliers’ delivery times lengthened again. Anecdotal evidence also suggested that vendors continued to hold low inventories. Input prices faced by construction companies rose sharply, with higher raw material costs, particularly for oil, cited as the main driver of inflation.

Overall, UK construction companies are optimistic that activity will rise over the next year and show improved confidence in the growth of the industry. Expectations for new marketing initiatives, a more buoyant outlook among clients, rising tender opportunities and company expansions are all anticipated to support growth.

“The unexpectedly strong rise in new orders has been a boon to the confidence of construction purchasing managers,” said David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply.

“Driven by stronger growth in activity in the commercial and civil engineering sectors, and positive sounds from customers at the end of what has been a much brighter first quarter for construction, the modest rise in employment shows that companies are now starting to develop an appetite for expansion.

“However, some supply side constraints remain, with suppliers unable to speed up the delivery of materials. Furthermore, continued upward pressure on input prices remains.”

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